Regulatory Filings • Jul 28, 2010
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Download Source FileN-CSRS 1 semiforms-852.htm SEMI-ANNUAL FORM semiforms-852.htm - Generated by SEC Publisher for SEC Filing $$/page=
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5877
Dreyfus Strategic Municipal Bond Fund, Inc. (Exact name of Registrant as specified in charter)
c/o The Dreyfus Corporation 200 Park Avenue New York, New York 10166 (Address of principal executive offices) (Zip code)
Michael A. Rosenberg, Esq. 200 Park Avenue New York, New York 10166 (Name and address of agent for service)
Registrant's telephone number, including area code: (212) 922-6000
| Date of fiscal year end: | 11/30 |
|---|---|
| Date of reporting period: | 5/31/10 |
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FORM N-CSR
ITEM 1. Reports to Stockholders.
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| Contents | |
|---|---|
| THE FUND | |
| 2 | A Letter from the Chairman and CEO |
| 3 | Discussion of Fund Performance |
| 6 | Statement of Investments |
| 22 | Statement of Assets and Liabilities |
| 23 | Statement of Operations |
| 24 | Statement of Changes in Net Assets |
| 25 | Financial Highlights |
| 27 | Notes to Financial Statements |
| 37 | Information About the Review and Approval of the Funds Investment Advisory Agreement |
| 45 | Officers and Directors |
| FOR MORE INFORMATION | |
| Back Cover |
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Dreyfus Strategic Municipal Bond Fund, Inc.
The Fund
A LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholder:
We are pleased to present this semiannual report for Dreyfus Strategic Municipal Bond Fund, Inc., covering the six-month period from December 1, 2009, through May 31, 2010.
Psychology historically has played an important role in how investors especially individual investors perceive the financial markets and make asset allocation decisions. Unlike the purely rational investor who, in an ideal world, would seek investments that potentially can deliver the best risk/return characteristics, the everyday investor typically has been influenced by emotions. Currently, investors emotions appear to be deeply divided, with a large number still seeking low risk investments (such as cash instruments), and others favoring higher risk investments (such as smaller-cap and emerging market stocks). Meanwhile, investment classes in the middle of the risk spectrum seemingly have been largely avoided.
It is important to note that investor sentiment often lags the economic cycle.Thats why we continue to stress the importance of a long-term, well balanced asset allocation strategy that can help cushion the volatility produced by the emotional swings of the financial markets. If you have not revisited your investment portfolio recently, we urge you to speak with your financial advisor about taking advantage of long-term market fundamentals rather than remaining susceptible to the effects of emotional reactions to short-term developments.
For information about how the fund performed during the reporting period, as well as general market perspectives, we provide a Discussion of Fund Performance on the pages that follow.
Thank you for your continued confidence and support.
Jonathan R. Baum Chairman and Chief Executive Officer The Dreyfus Corporation June 15, 2010
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DISCUSSION OF FUND PERFORMANCE
For the period of December 1, 2009, through May 31, 2010, as provided by James Welch, Senior Portfolio Manager
Fund and Market Performance Overview
For the six-month period ended May 31, 2010, Dreyfus Strategic Municipal Bond Fund achieved a total return of 6.82% on a net-asset-value basis. 1 Over the same period, the fund provided aggregate income dividends of $0.270 per share,which reflects a distribution rate of 6.71%. 2
Municipal bonds generally rallied over the reporting period amid an economic recovery and robust demand for a limited supply of securities.The funds performance was driven primarily by the success of our security selection strategy, which offset shortfalls stemming from a higher-quality investment posture during a rally dominated by lower-rated securities.
The Funds Investment Approach
The fund seeks to maximize current income exempt from federal income tax to the extent believed by Dreyfus to be consistent with the preservation of capital. In pursuing this goal, the fund invests at least 80% of its assets in municipal bonds. Under normal market conditions, the weighted average maturity of the funds portfolio is expected to exceed 10 years. Under normal market conditions, the fund invests at least 80% of its net assets in municipal bonds considered investment grade or the unrated equivalent as determined by Dreyfus.
The fund also has issued auction-rate preferred stock (ARPS), which remains outstanding, and has invested the proceeds in a manner consistent with its investment objective.This has the effect of leveraging the portfolio, which can increase the funds performance potential as well as, depending on market conditions, enhance net asset value losses during times of higher market risk.
Over time,many of the funds older,higher yielding bonds have matured or were redeemed by their issuers.We have attempted to replace those bonds with investments consistent with the funds investment policies. We have also sought to upgrade the fund with newly issued bonds that,
The Fund 3
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DISCUSSION OF FUND PERFORMANCE (continued)
in our opinion, have better structural or income characteristics than existing holdings.When such opportunities arise, we usually look to sell bonds that are close to their optimal redemption date or maturity.
Recovering Economy Lifted Municipal Bonds
An improving U.S. economy bolstered confidence among consumers, businesses and investors during the reporting period. However, unemployment has remained stubbornly high, and the pace of the economic recovery so far has been slower than historical averages. In addition, most states have continued to struggle with declining tax revenues and intensifying demand for services. In light of these challenges, the Federal Reserve Board left short-term interest rates unchanged throughout the reporting period in a historically low range between 0% and 0.25%.
In this environment, the municipal bond market was influenced by improving investor sentiment. In addition, issuance of new tax-exempt bonds moderated significantly due to the federally subsidized Build America Bonds program, part of the stimulus package that shifted a substantial portion of new issuance to the taxable bond market. Meanwhile, demand for municipal bonds intensified as individual and institutional investors sought alternatives to low yielding money market funds. Consequently,longer-term municipal bond yields trended downward,on average, over the reporting period. For much of the reporting period, performance was stronger among lower-rated municipal bonds that had been punished severely during the downturn, while bonds backed by general tax revenues generally lagged market averages.
Security Selection Strategy Supported Fund Returns
The fund benefited over the reporting period from its holdings of lower-rated bonds, where the market rally was particularly pronounced. However, as the rally aged, valuations of lower-rated bonds climbed to less attractive levels.We sold or trimmed the funds holdings of municipal bonds rated BBB and lower, and we increased its exposure to A-rated bonds backed by revenues from hospitals, airports, transportation resources and other facilities deemed fundamentally sound by our credit analysts. While we believe that this higher-quality investment posture
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positions the fund well for the future, it dampened the funds relative performance to a degree during the reporting periods lower-quality rally.
The fund also received positive contributions to performance from its leveraging strategy, which benefited from historically low interest rates. During the reporting period, we reduced issuance of auction-rate securities in favor of tender option bonds that, in our judgment, have better liquidity characteristics in todays marketplace.
Supply-and-Demand Factors May Remain Favorable
We remain optimistic regarding the long-term prospects of municipal bonds. Demand seems likely to remain robust as investors grow increasingly concerned about potential increases in state and federal income taxes. In addition, the Build America Bonds program may be extended beyond its current expiration date at the end of this year, which could keep the supply of new tax-exempt bonds relatively low. Consequently, we have retained our focus on higher-quality bonds. Of course, we are prepared to adjust our strategies as market conditions change.
June 15, 2010
| Bond funds are subject generally to interest rate, credit, liquidity and market risks, to varying | |
|---|---|
| degrees, all of which are more fully described in the funds prospectus. Generally, all other factors | |
| being equal, bond prices are inversely related to interest-rate changes, and rate increases can cause | |
| price declines. | |
| High yield bonds are subject to increased credit risk and are considered speculative in terms of the | |
| issuers perceived ability to continue making interest payments on a timely basis and to repay | |
| principal upon maturity. | |
| The use of leverage may magnify the funds gains or losses. For derivatives with a leveraging | |
| component, adverse changes in the value or level of the underlying asset can result in a loss that is | |
| much greater than the original investment in the derivative. | |
| 1 | Total return includes reinvestment of dividends and any capital gains paid, based upon net asset |
| value per share. Past performance is no guarantee of future results. Income may be subject to state | |
| and local taxes, and some income may be subject to the federal alternative minimum tax (AMT) | |
| for certain investors. Capital gains, if any, are fully taxable. Return figure provided reflects the | |
| absorption of certain expenses by The Dreyfus Corporation pursuant to an undertaking in effect | |
| through November 30, 2010. Had these expenses not been absorbed, the funds return would | |
| have been lower. | |
| 2 | Distribution rate per share is based upon dividends per share paid from net investment income |
| during the period, annualized, divided by the market price per share at the end of the period, | |
| adjusted for any capital gain distributions. |
The Fund 5
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| STATEMENT OF INVESTMENTS |
|---|
| May 31, 2010 (Unaudited) |
| Long-Term Municipal | Coupon | Maturity | Principal | ||
|---|---|---|---|---|---|
| Investments147.3% | Rate (%) | Date | Amount ($) | Value ($) | |
| Alaska1.0% | |||||
| Alaska Housing Finance | |||||
| Corporation, Single-Family | |||||
| Residential Mortgage Revenue | |||||
| (Veterans Mortgage Program) | 6.25 | 6/1/35 | 3,975,000 | 3,979,213 | |
| Arizona7.3% | |||||
| Barclays Capital Municipal Trust | |||||
| Receipts (Salt River Project | |||||
| Agricultural Improvement and | |||||
| Power District, Salt River Project | |||||
| Electric System Revenue) | 5.00 | 1/1/38 | 13,200,000 | a,b | 13,779,546 |
| Glendale Western Loop 101 Public | |||||
| Facilities Corporation, Third | |||||
| Lien Excise Tax Revenue | 7.00 | 7/1/33 | 6,010,000 | 6,492,483 | |
| Pima County Industrial Development | |||||
| Authority, Education Revenue | |||||
| (American Charter Schools | |||||
| Foundation Project) | 5.50 | 7/1/26 | 4,000,000 | 3,701,880 | |
| Pima County Industrial Development | |||||
| Authority, IDR (Tucson Electric | |||||
| Power Company Project) | 5.75 | 9/1/29 | 5,000,000 | 5,119,600 | |
| Arkansas.5% | |||||
| Arkansas Development Finance | |||||
| Authority, SFMR (Mortgage | |||||
| Backed Securities Program) | |||||
| (Collateralized: FNMA and GNMA) | 6.25 | 1/1/32 | 1,915,000 | 2,005,752 | |
| California19.3% | |||||
| Barclays Capital Municipal Trust | |||||
| Receipts (California | |||||
| Infrastructure and Economic | |||||
| Bank, Revenue (Sanford | |||||
| Consortium Project)) | 5.00 | 5/15/40 | 5,070,000 | a,b | 5,234,648 |
| Beverly Hills Unified School | |||||
| District, GO | 0.00 | 8/1/30 | 8,000,000 | c | 2,817,600 |
| California, | |||||
| GO (Various Purpose) | 5.75 | 4/1/31 | 7,800,000 | 8,316,672 | |
| California, | |||||
| GO (Various Purpose) | 5.00 | 11/1/32 | 2,600,000 | 2,558,582 | |
| California, | |||||
| GO (Various Purpose) | 6.50 | 4/1/33 | 5,000,000 | 5,664,750 |
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| Long-Term Municipal | Coupon | Maturity | Principal | |
|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
| California (continued) | ||||
| California, | ||||
| GO (Various Purpose) | 6.00 | 11/1/35 | 5,000,000 | 5,482,150 |
| California Department of Veteran | ||||
| Affairs, Home Purchase Revenue | 5.20 | 12/1/28 | 2,950,000 | 2,951,623 |
| California Educational Facilities | ||||
| Authority, Revenue (University | ||||
| of Southern California) | 5.25 | 10/1/38 | 5,000,000 | 5,386,000 |
| California Enterprise Development | ||||
| Authority, Sewage Facilities | ||||
| Revenue (Anheuser-Busch Project) | 5.30 | 9/1/47 | 1,000,000 | 983,940 |
| California Housing Finance Agency, | ||||
| Home Mortgage Revenue | 5.05 | 8/1/27 | 2,500,000 | 2,338,875 |
| California Pollution Control | ||||
| Financing Authority, SWDR | ||||
| (Waste Management, Inc. Project) | 5.13 | 11/1/23 | 1,500,000 | 1,506,000 |
| Golden State Tobacco | ||||
| Securitization Corporation, | ||||
| Tobacco Settlement | ||||
| Asset-Backed Bonds | 5.00 | 6/1/33 | 10,535,000 | 8,386,176 |
| Los Angeles Department of Water | ||||
| and Power, Power System Revenue | 5.00 | 7/1/34 | 2,885,000 | 3,008,680 |
| Sacramento City Unified School | ||||
| District, GO (Insured; Assured | ||||
| Guaranty Municipal Corp.) | 0.00 | 7/1/24 | 5,220,000 c | 2,479,604 |
| Sacramento County, | ||||
| Airport System Subordinate and | ||||
| Passenger Facility Charges | ||||
| Grant Revenue | 6.00 | 7/1/35 | 4,000,000 | 4,360,520 |
| San Diego Public Facilities | ||||
| Financing Authority, Senior | ||||
| Sewer Revenue | 5.25 | 5/15/34 | 2,500,000 | 2,669,325 |
| San Francisco City and County | ||||
| Public Utilities Commission, | ||||
| San Francisco Water Revenue | 5.00 | 11/1/29 | 4,000,000 | 4,259,640 |
| Santa Margarita/Dana Point | ||||
| Authority, Revenue (Santa | ||||
| Margarita Water District | ||||
| Improvement Districts | ||||
| Numbers 2,3 and 4) | 5.13 | 8/1/38 | 5,000,000 | 5,194,100 |
The Fund 7
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STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | ||
|---|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| California (continued) | |||||
| Silicon Valley Tobacco | |||||
| Securitization Authority, | |||||
| Tobacco Settlement | |||||
| Asset-Backed Bonds (Santa | |||||
| Clara County Tobacco | |||||
| Securitization Corporation) | 0.00 | 6/1/36 | 15,290,000 | c | 1,522,272 |
| Tuolumne Wind Project Authority, | |||||
| Revenue (Tuolumne | |||||
| Company Project) | 5.88 | 1/1/29 | 2,000,000 | 2,200,060 | |
| Colorado.3% | |||||
| Colorado Housing and Finance | |||||
| Authority, Single Family | |||||
| Program Senior and Subordinate | |||||
| Bonds (Collateralized; FHA) | 6.60 | 8/1/32 | 1,230,000 | 1,306,518 | |
| Connecticut3.5% | |||||
| Connecticut Development Authority, | |||||
| PCR (Connecticut Light and | |||||
| Power Company Project) | 5.95 | 9/1/28 | 9,000,000 | 9,075,330 | |
| Connecticut Resources Recovery | |||||
| Authority, Special Obligation | |||||
| Revenue (American REF-FUEL | |||||
| Company of Southeastern | |||||
| Connecticut Project) | 6.45 | 11/15/22 | 4,985,000 | 4,987,393 | |
| District of Columbia1.4% | |||||
| District of Columbia Tobacco | |||||
| Settlement Financing | |||||
| Corporation, Tobacco | |||||
| Settlement Asset-Backed Bonds | 0.00 | 6/15/46 104,040,000 | c | 3,717,349 | |
| Metropolitan Washington Airports | |||||
| Authority, Special Facility | |||||
| Revenue (Caterair | |||||
| International Corporation) | 10.13 | 9/1/11 | 1,700,000 | 1,686,927 | |
| Florida4.2% | |||||
| Highlands County Health Facilities | |||||
| Authority, HR (Adventist | |||||
| Health System/Sunbelt | |||||
| Obligated Group) | 5.25 | 11/15/36 | 2,875,000 | 2,915,796 |
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| Long-Term Municipal | Coupon | Maturity | Principal | |
|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
| Florida (continued) | ||||
| Miami-Dade County, | ||||
| Water and Sewer | ||||
| System Revenue | 5.00 | 10/1/34 | 3,000,000 | 3,105,180 |
| Orange County Health | ||||
| Facilities Authority, | ||||
| Revenue (Adventist Health | ||||
| System) (Prerefunded) | 6.25 | 11/15/12 | 3,000,000 d | 3,355,050 |
| Orange County School | ||||
| Board, COP (Master Lease | ||||
| Purchase Agreement) | ||||
| (Insured; Assured Guaranty | ||||
| Municipal Corp.) | 5.50 | 8/1/34 | 4,500,000 | 4,820,940 |
| South Lake County Hospital | ||||
| District, Revenue (South Lake | ||||
| Hospital, Inc.) | 6.25 | 4/1/39 | 2,500,000 | 2,592,125 |
| Georgia4.1% | ||||
| Atlanta, | ||||
| Water and Wastewater Revenue | 6.00 | 11/1/28 | 4,865,000 | 5,318,661 |
| Atlanta, | ||||
| Water and Wastewater Revenue | ||||
| (Insured; Assured Guaranty | ||||
| Municipal Corp.) | 5.25 | 11/1/34 | 3,750,000 | 3,934,575 |
| Augusta, | ||||
| Airport Revenue | 5.45 | 1/1/31 | 2,500,000 | 2,292,400 |
| Georgia Housing and Finance | ||||
| Authority, SFMR | 5.60 | 12/1/32 | 1,990,000 | 2,002,258 |
| Savannah Economic Development | ||||
| Authority, EIR (International | ||||
| Paper Company Project) | 6.20 | 8/1/27 | 2,670,000 | 2,694,911 |
| Hawaii1.0% | ||||
| Hawaii, | ||||
| Airports System Revenue | 5.25 | 7/1/28 | 3,650,000 | 3,860,824 |
| Idaho.1% | ||||
| Idaho Housing and Finance | ||||
| Association, SFMR | ||||
| (Collateralized; FNMA) | 6.35 | 1/1/30 | 220,000 | 220,293 |
The Fund 9
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STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | |
|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
| Illinois.8% | ||||
| Chicago, | ||||
| SFMR (Collateralized: FHLMC, | ||||
| FNMA and GNMA) | 6.25 | 10/1/32 | 1,120,000 | 1,177,064 |
| Illinois Finance Authority, | ||||
| Revenue (Sherman | ||||
| Health Systems) | 5.50 | 8/1/37 | 2,020,000 | 1,857,430 |
| Iowa.4% | ||||
| Tobacco Settlement Authority of | ||||
| Iowa, Tobacco Settlement | ||||
| Asset-Backed Bonds | 5.60 | 6/1/34 | 2,000,000 | 1,684,800 |
| Kentucky.3% | ||||
| Louisville/Jefferson County | ||||
| Metro Government, Health | ||||
| Facilities Revenue (Jewish | ||||
| Hospital and Saint Marys | ||||
| HealthCare, Inc. Project) | 6.13 | 2/1/37 | 1,000,000 | 1,044,330 |
| Louisiana2.3% | ||||
| Lakeshore Villages Master | ||||
| Community Development District, | ||||
| Special Assessment Revenue | 5.25 | 7/1/17 | 1,987,000 | 1,205,215 |
| Louisiana Local Government | ||||
| Environmental Facilities and | ||||
| Community Development | ||||
| Authority, Revenue (Westlake | ||||
| Chemical Corporation Projects) | 6.75 | 11/1/32 | 4,000,000 | 4,138,680 |
| West Feliciana Parish, | ||||
| PCR (Entergy Gulf States Project) | 7.00 | 11/1/15 | 1,270,000 | 1,273,886 |
| West Feliciana Parish, | ||||
| PCR (Entergy Gulf States Project) | 6.60 | 9/1/28 | 2,545,000 | 2,547,596 |
| Maryland1.6% | ||||
| Maryland Economic Development | ||||
| Corporation, EDR (Transportation | ||||
| Facilities Project) | 5.75 | 6/1/35 | 1,000,000 | 1,024,450 |
| Maryland Economic Development | ||||
| Corporation, Senior Student | ||||
| Housing Revenue (University of | ||||
| Maryland, Baltimore Project) | 5.75 | 10/1/33 | 2,550,000 | 1,780,461 |
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| Long-Term Municipal | Coupon | Maturity | Principal | ||
|---|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Maryland (continued) | |||||
| Maryland Industrial Development | |||||
| Financing Authority, EDR | |||||
| (Medical Waste Associates | |||||
| Limited Partnership Facility) | 8.75 | 11/15/10 | 3,710,000 | 3,413,200 | |
| Massachusetts7.5% | |||||
| Barclays Capital Municipal Trust | |||||
| Receipts (Massachusetts Health | |||||
| and Educational Facilities Authority, | |||||
| Revenue (Massachusetts Institute | |||||
| of Technology Issue)) | 5.00 | 7/1/38 | 10,200,000 | a,b | 10,820,823 |
| Massachusetts Health and | |||||
| Educational Facilities Authority, | |||||
| Revenue (Civic Investments | |||||
| Issue) (Prerefunded) | 9.00 | 12/15/12 | 1,700,000 | d | 2,002,600 |
| Massachusetts Health and | |||||
| Educational Facilities | |||||
| Authority, Revenue (Partners | |||||
| HealthCare System Issue) | 5.75 | 7/1/32 | 115,000 | 117,729 | |
| Massachusetts Health and | |||||
| Educational Facilities | |||||
| Authority, Revenue | |||||
| (Suffolk University Issue) | 6.25 | 7/1/30 | 5,000,000 | 5,425,250 | |
| Massachusetts Housing Finance | |||||
| Agency, Housing Revenue | 7.00 | 12/1/38 | 5,000,000 | 5,608,800 | |
| Massachusetts Housing Finance | |||||
| Agency, SFHR | 5.00 | 12/1/31 | 6,000,000 | 6,045,900 | |
| Michigan6.6% | |||||
| Detroit, | |||||
| Sewage Disposal System Senior | |||||
| Lien Revenue (Insured; Assured | |||||
| Guaranty Municipal Corp.) | 7.50 | 7/1/33 | 3,500,000 | 4,229,645 | |
| Kent Hospital Finance Authority, | |||||
| Revenue (Metropolitan | |||||
| Hospital Project) | 6.00 | 7/1/35 | 2,000,000 | 1,828,620 | |
| Michigan Strategic Fund, | |||||
| SWDR (Genesee Power | |||||
| Station Project) | 7.50 | 1/1/21 | 7,420,000 | 6,758,507 |
The Fund 11
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STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | |
|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
| Michigan (continued) | ||||
| Royal Oak Hospital Finance | ||||
| Authority, HR (William | ||||
| Beaumont Hospital | ||||
| Obligated Group) | 8.00 | 9/1/29 | 5,000,000 | 5,989,150 |
| Wayne County Airport Authority, | ||||
| Airport Revenue (Detroit | ||||
| Metropolitan Wayne County | ||||
| Airport) (Insured; National | ||||
| Public Finance Guarantee Corp.) | 5.00 | 12/1/34 | 8,260,000 | 7,293,250 |
| Mississippi1.1% | ||||
| Mississippi Business Finance | ||||
| Corporation, PCR (System | ||||
| Energy Resources, Inc. Project) | 5.90 | 5/1/22 | 4,260,000 | 4,271,033 |
| Missouri1.4% | ||||
| Missouri Health and Educational | ||||
| Facilities Authority, Health | ||||
| Facilities Revenue | ||||
| (BJC Health System) | 5.25 | 5/15/32 | 5,525,000 | 5,612,627 |
| Nevada2.6% | ||||
| Clark County, | ||||
| IDR (Nevada Power | ||||
| Company Project) | 5.60 | 10/1/30 | 5,500,000 | 5,193,705 |
| Clark County, | ||||
| Passenger Facility Charge | ||||
| Revenue (Las Vegas-McCarran | ||||
| International Airport) | 5.00 | 7/1/30 | 5,000,000 | 5,041,500 |
| New Hampshire3.6% | ||||
| New Hampshire Business | ||||
| Finance Authority, PCR | ||||
| (Public Service Company | ||||
| of New Hampshire Project) | ||||
| (Insured; National Public | ||||
| Finance Guarantee Corp.) | 6.00 | 5/1/21 | 2,690,000 | 2,719,052 |
| New Hampshire Business | ||||
| Finance Authority, PCR | ||||
| (Public Service Company | ||||
| of New Hampshire Project) | ||||
| (Insured; National Public | ||||
| Finance Guarantee Corp.) | 6.00 | 5/1/21 | 6,000,000 | 6,064,800 |
12
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| Long-Term Municipal | Coupon | Maturity | Principal | ||
|---|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| New Hampshire (continued) | |||||
| New Hampshire Industrial | |||||
| Development Authority, PCR | |||||
| (Connecticut Light and Power | |||||
| Company Project) | 5.90 | 11/1/16 | 5,400,000 | 5,408,046 | |
| New Jersey5.2% | |||||
| New Jersey Economic Development | |||||
| Authority, School Facilities | |||||
| Construction Revenue | 5.50 | 12/15/29 | 5,000,000 | 5,552,500 | |
| New Jersey Economic Development | |||||
| Authority, Water Facilities | |||||
| Revenue (New JerseyAmerican | |||||
| Water Company, Inc. Project) | 5.70 | 10/1/39 | 3,000,000 | 3,094,410 | |
| Tobacco Settlement Financing | |||||
| Corporation of New Jersey, | |||||
| Tobacco Settlement | |||||
| Asset-Backed Bonds | 5.00 | 6/1/29 | 250,000 | 205,623 | |
| Tobacco Settlement Financing | |||||
| Corporation of New Jersey, | |||||
| Tobacco Settlement Asset-Backed | |||||
| Bonds (Prerefunded) | 7.00 | 6/1/13 | 10,095,000 | d | 11,866,471 |
| New Mexico1.3% | |||||
| Farmington, | |||||
| PCR (Public Service Company of | |||||
| New Mexico San Juan Project) | 5.90 | 6/1/40 | 5,000,000 | e | 5,037,550 |
| New York7.6% | |||||
| Austin Trust | |||||
| (Port Authority of New York | |||||
| and New Jersey, Consolidated | |||||
| Bonds, 151st Series) | 6.00 | 9/15/28 | 10,000,000 | a,b | 11,069,900 |
| Long Island Power Authority, | |||||
| Electric System General Revenue | 6.25 | 4/1/33 | 3,000,000 | 3,491,070 | |
| Metropolitan Transportation | |||||
| Authority, Transportation Revenue | 6.25 | 11/15/23 | 8,425,000 | 9,965,764 | |
| New York City Industrial | |||||
| Development Agency, Special | |||||
| Facility Revenue (American | |||||
| Airlines, Inc. John F. Kennedy | |||||
| International Airport Project) | 7.75 | 8/1/31 | 5,000,000 | 5,114,350 |
The Fund 13
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STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | ||
|---|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| New York (continued) | |||||
| New York State Dormitory | |||||
| Authority, Revenue (Suffolk | |||||
| County Judicial Facility) | 9.50 | 4/15/14 | 605,000 | 772,670 | |
| North Carolina3.1% | |||||
| Barclays Capital Municipal Trust | |||||
| Receipts (North Carolina | |||||
| Medical Care Commission, | |||||
| Health Care Facilities Revenue | |||||
| (Duke University Health System) | 5.00 | 6/1/42 | 10,000,000 | a,b | 10,237,400 |
| North Carolina Housing | |||||
| Finance Agency, Home | |||||
| Ownership Revenue | 5.88 | 7/1/31 | 2,220,000 | 2,221,554 | |
| Ohio1.6% | |||||
| Ohio Air Quality Development | |||||
| Authority, Air Quality Revenue | |||||
| (Ohio Valley Electric | |||||
| Corporation Project) | 5.63 | 10/1/19 | 4,200,000 | 4,510,422 | |
| Port of Greater Cincinnati | |||||
| Development Authority, Tax | |||||
| Increment Development Revenue | |||||
| (Fairfax Village Red Bank | |||||
| Infrastructure Project) | 5.63 | 2/1/36 | 2,530,000 | b | 1,848,772 |
| Oregon.4% | |||||
| Warm Springs Reservation | |||||
| Confederated Tribes, | |||||
| Hydroelectric Revenue | |||||
| (Pelton Round Butte Project) | 6.38 | 11/1/33 | 1,500,000 | 1,519,080 | |
| Pennsylvania.9% | |||||
| Pennsylvania Turnpike | |||||
| Commission, Turnpike | |||||
| Subordinate Revenue | 5.25 | 6/1/39 | 3,545,000 | 3,716,046 | |
| Rhode Island1.5% | |||||
| Rhode Island Health and | |||||
| Educational Building Corporation, | |||||
| Hospital Financing Revenue | |||||
| (Lifespan Obligated Group Issue) | |||||
| (Insured; Assured Guaranty | |||||
| Municipal Corp.) | 7.00 | 5/15/39 | 5,000,000 | 5,799,900 |
14
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| Long-Term Municipal | Coupon | Maturity | Principal | ||
|---|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| South Carolina1.8% | |||||
| Greenville Hospital System, | |||||
| Hospital Facilities Revenue | |||||
| (Insured; AMBAC) | 5.50 | 5/1/26 | 7,000,000 | 7,129,990 | |
| Tennessee4.5% | |||||
| Johnson City Health and | |||||
| Educational Facilities Board, | |||||
| Hospital First Mortgage | |||||
| Revenue (Mountain States | |||||
| Health Alliance) (Prerefunded) | 7.50 | 7/1/12 | 2,000,000 | d | 2,269,000 |
| Johnson City Health and | |||||
| Educational Facilities Board, | |||||
| Hospital First Mortgage | |||||
| Revenue (Mountain States | |||||
| Health Alliance) (Prerefunded) | 7.50 | 7/1/12 | 4,875,000 | d | 5,530,688 |
| Memphis Center City Revenue | |||||
| Finance Corporation, Sports Facility | |||||
| Revenue (Memphis Redbirds | |||||
| Baseball Foundation Project) | 6.50 | 9/1/28 | 6,000,000 | f | 2,789,100 |
| Metropolitan Government of | |||||
| Nashville and Davidson County | |||||
| Health and Educational | |||||
| Facilities Board, Revenue (The | |||||
| Vanderbilt University) | 5.50 | 10/1/29 | 2,500,000 | 2,845,150 | |
| Metropolitan Government of | |||||
| Nashville and Davidson County | |||||
| Health and Educational | |||||
| Facilities Board, Revenue | |||||
| (The Vanderbilt University) | 5.50 | 10/1/34 | 3,000,000 | 3,346,500 | |
| Tennessee Housing Development | |||||
| Agency, Homeownership | |||||
| Program Revenue | 6.00 | 1/1/28 | 1,180,000 | 1,182,985 | |
| Texas25.5% | |||||
| Barclays Capital Municipal Trust | |||||
| Receipts (Leander Independent | |||||
| School District, Unlimited Tax | |||||
| School Building Bonds | |||||
| (Permanent School Fund | |||||
| Guarantee Program)) | 5.00 | 8/15/40 | 10,000,000 | a,b | 10,625,050 |
The Fund 15
$$/page=
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | ||
|---|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Texas (continued) | |||||
| Barclays Capital Municipal Trust | |||||
| Receipts (Texas A&M University | |||||
| System Board of Regents, | |||||
| Financing System Revenue) | 5.00 | 5/15/39 | 13,160,000 | a,b,e | 14,059,552 |
| Brazos River Authority, | |||||
| PCR (TXU Electric | |||||
| Company Project) | 8.25 | 5/1/33 | 1,750,000 | b | 1,088,185 |
| Dallas-Fort Worth International | |||||
| Airport Facility Improvement | |||||
| Corporation, Revenue | |||||
| (Learjet Inc. Project) | 6.15 | 1/1/16 | 3,000,000 | 3,000,960 | |
| Harris County Health Facilities | |||||
| Development Corporation, | |||||
| HR (Memorial Hermann | |||||
| Healthcare System) | 7.25 | 12/1/35 | 9,290,000 | 10,531,330 | |
| Harris County Hospital District, | |||||
| Senior Lien Revenue (Insured; | |||||
| National Public Finance | |||||
| Guarantee Corp.) | 5.25 | 2/15/42 | 5,000,000 | 4,886,300 | |
| Harris County-Houston Sports | |||||
| Authority, Third Lien Revenue | |||||
| (Insured; National Public | |||||
| Finance Guarantee Corp.) | 0.00 | 11/15/31 | 9,685,000 | c | 2,193,556 |
| Houston, | |||||
| Combined Utility System First | |||||
| Lien Revenue (Insured; Assured | |||||
| Guaranty Municipal Corp.) | 6.00 | 11/15/36 | 5,000,000 | 5,749,050 | |
| Matagorda County Navigation | |||||
| District Number One, Revenue | |||||
| (Houston Lighting and | |||||
| Power Company Project) | |||||
| (Insured; AMBAC) | 5.13 | 11/1/28 | 4,295,000 | 4,187,367 | |
| North Texas Tollway Authority, | |||||
| First Tier System Revenue | |||||
| (Insured; Assured Guaranty | |||||
| Municipal Corp.) | 5.75 | 1/1/40 | 14,705,000 | 15,836,109 | |
| North Texas Tollway Authority, | |||||
| Second Tier System Revenue | 5.75 | 1/1/38 | 6,650,000 | 6,965,808 |
16
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| Long-Term Municipal | Coupon | Maturity | Principal | ||
|---|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) | |
| Texas (continued) | |||||
| Sabine River Authority, PCR | |||||
| (TXU Electric Company Project) | 6.45 | 6/1/21 | 4,900,000 | 2,918,636 | |
| Texas | |||||
| (Veterans Land) | 6.00 | 12/1/30 | 3,935,000 | 3,953,101 | |
| Texas Department of Housing | |||||
| and Community Affairs, Home | |||||
| Mortgage Revenue (Collateralized: | |||||
| FHLMC, FNMA and GNMA) | 12.72 | 7/2/24 | 800,000 | g | 926,816 |
| Texas Department of Housing and | |||||
| Community Affairs, Residential | |||||
| Mortgage Revenue (Collateralized: | |||||
| FHLMC, FNMA and GNMA) | 5.35 | 7/1/33 | 4,710,000 | 4,751,872 | |
| Texas Turnpike Authority, | |||||
| Central Texas Turnpike System | |||||
| Revenue (Insured; AMBAC) | 5.25 | 8/15/42 | 5,375,000 | 5,385,696 | |
| Tomball Hospital Authority, | |||||
| Revenue (Tomball | |||||
| Regional Hospital) | 6.00 | 7/1/25 | 4,650,000 | 4,590,712 | |
| Virginia6.6% | |||||
| Henrico County Industrial | |||||
| Development Authority, Revenue | |||||
| (Bon Secours Health System) | |||||
| (Insured; Assured Guaranty | |||||
| Municipal Corp.) | 10.95 | 8/23/27 | 7,350,000 | g | 8,459,924 |
| Virginia Housing Development | |||||
| Authority, Commonwealth | |||||
| Mortgage Revenue | 6.25 | 7/1/31 | 5,250,000 | 5,692,943 | |
| Virginia Housing Development | |||||
| Authority, Rental Housing Revenue | 6.20 | 8/1/24 | 8,520,000 | 8,541,982 | |
| Washington County Industrial | |||||
| Development Authority, HR | |||||
| (Mountain States Health Alliance) | 7.75 | 7/1/38 | 3,000,000 | 3,437,130 | |
| Washington1.6% | |||||
| Washington Health Care Facilities | |||||
| Authority, Mortgage Revenue | |||||
| (Highline Medical Center) | |||||
| (Collateralized; FHA) | 6.25 | 8/1/36 | 6,000,000 | 6,506,100 |
The Fund 17
$$/page=
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Long-Term Municipal | Coupon | Maturity | Principal | |
|---|---|---|---|---|
| Investments (continued) | Rate (%) | Date | Amount ($) | Value ($) |
| West Virginia2.0% | ||||
| The County Commission of | ||||
| Harrison County, SWDR | ||||
| (Allegheny Energy | ||||
| Supply Company, LLC | ||||
| Harrison Station Project) | 5.50 | 10/15/37 | 7,920,000 | 7,754,947 |
| Wisconsin6.9% | ||||
| Badger Tobacco Asset | ||||
| Securitization Corporation, | ||||
| Tobacco Settlement | ||||
| Asset-Backed Bonds | 6.13 | 6/1/27 | 6,455,000 | 6,889,680 |
| Badger Tobacco Asset | ||||
| Securitization Corporation, | ||||
| Tobacco Settlement Asset-Backed | ||||
| Bonds (Prerefunded) | 7.00 | 6/1/12 | 14,570,000 d | 16,344,917 |
| Wisconsin Health and Educational | ||||
| Facilities Authority, Revenue | ||||
| (Aurora Health Care, Inc.) | 6.40 | 4/15/33 | 4,000,000 | 4,092,240 |
| U.S. Related5.9% | ||||
| Government of Guam, | ||||
| GO | 7.00 | 11/15/39 | 1,500,000 | 1,612,335 |
| Puerto Rico Commonwealth, | ||||
| Public Improvement GO | 5.50 | 7/1/32 | 1,500,000 | 1,548,330 |
| Puerto Rico Commonwealth, | ||||
| Public Improvement GO | 6.00 | 7/1/39 | 3,500,000 | 3,713,640 |
| Puerto Rico Electric Power | ||||
| Authority, Power Revenue | 5.25 | 7/1/40 | 2,000,000 | 2,024,920 |
| Puerto Rico Sales Tax Financing | ||||
| Corporation, Sales Tax Revenue | ||||
| (First Subordinate Series) | 5.38 | 8/1/39 | 2,500,000 | 2,596,300 |
| Puerto Rico Sales Tax Financing | ||||
| Corporation, Sales Tax Revenue | ||||
| (First Subordinate Series) | 6.00 | 8/1/42 | 10,000,000 | 10,850,400 |
| Virgin Islands Public Finance | ||||
| Authority, Revenue (Virgin Islands | ||||
| Matching Fund Loan Notes) | ||||
| (Senior Lien/Capital Projects) | 5.00 | 10/1/39 | 1,250,000 | 1,250,837 |
| Total Long-Term Municipal Investments | ||||
| (cost $579,197,532) | 585,947,990 |
18
$$/page=
| Short-Term Municipal | Coupon | Maturity | Principal | |
|---|---|---|---|---|
| Investment1.3% | Rate (%) | Date | Amount ($) | Value ($) |
| New York; | ||||
| New York City, | ||||
| GO Notes (Liquidity Facility; | ||||
| Allied Irish Banks) | ||||
| (cost $5,000,000) | 1.15 | 6/1/10 | 5,000,000 h | 5,000,000 |
| Total Investments (cost $584,197,532) | 148.6% | 590,947,990 | ||
| Liabilities, Less Cash and Receivables | (5.9%) | (23,560,262) | ||
| Preferred Stock, at redemption value | (42.7%) | (169,800,000) | ||
| Net Assets Applicable to Common Shareholders | 100.0% | 397,587,728 |
| a Collateral for floating rate borrowings. |
|---|
| b Securities exempt from registration under Rule 144A of the Securities Act of 1933.These securities may be resold in |
| transactions exempt from registration, normally to qualified institutional buyers. At May 31, 2010, these securities |
| had a total market value of $78,763,876 or 19.8% of net assets applicable to Common Shareholders. |
| c Security issued with a zero coupon. Income is recognized through the accretion of discount. |
| d These securities are prerefunded; the date shown represents the prerefunded date. Bonds which are prerefunded are |
| collateralized by U.S. Government securities which are held in escrow and are used to pay principal and interest on |
| the municipal issue and to retire the bonds in full at the earliest refunding date. |
| e Purchased on a delayed delivery basis. |
| f Non-income producingsecurity in default. |
| g Inverse floater securitythe interest rate is subject to change periodically. |
| h Variable rate demand noterate shown is the interest rate in effect at May 31, 2010. Maturity date represents the |
| next demand date, or the ultimate maturity date if earlier. |
The Fund 19
$$/page=
STATEMENT OF INVESTMENTS (Unaudited) (continued)
| Summary of Abbreviations — ABAG | Association of Bay Area Governments | ACA | American Capital Access |
|---|---|---|---|
| AGC | ACE Guaranty Corporation | AGIC | Asset Guaranty Insurance Company |
| AMBAC | American Municipal Bond | ARRN | Adjustable Rate Receipt Notes |
| Assurance Corporation | |||
| BAN | Bond Anticipation Notes | BPA | Bond Purchase Agreement |
| CIFG | CDC Ixis Financial Guaranty | COP | Certificate of Participation |
| CP | Commercial Paper | EDR | Economic Development Revenue |
| EIR | Environmental Improvement Revenue | FGIC | Financial Guaranty Insurance |
| Company | |||
| FHA | Federal Housing Administration | FHLB | Federal Home Loan Bank |
| FHLMC | Federal Home Loan Mortgage | FNMA | Federal National |
| Corporation | Mortgage Association | ||
| GAN | Grant Anticipation Notes | GIC | Guaranteed Investment Contract |
| GNMA | Government National | GO | General Obligation |
| Mortgage Association | |||
| HR | Hospital Revenue | IDB | Industrial Development Board |
| IDC | Industrial Development Corporation | IDR | Industrial Development Revenue |
| LOC | Letter of Credit | LOR | Limited Obligation Revenue |
| LR | Lease Revenue | MFHR | Multi-Family Housing Revenue |
| MFMR | Multi-Family Mortgage Revenue | PCR | Pollution Control Revenue |
| PILOT | Payment in Lieu of Taxes | PUTTERS Puttable Tax-Exempt Receipts | |
| RAC | Revenue Anticipation Certificates | RAN | Revenue Anticipation Notes |
| RAW | Revenue Anticipation Warrants | RRR | Resources Recovery Revenue |
| SAAN | State Aid Anticipation Notes | SBPA | Standby Bond Purchase Agreement |
| SFHR | Single Family Housing Revenue | SFMR | Single Family Mortgage Revenue |
| SONYMA | State of New York Mortgage Agency | SWDR | Solid Waste Disposal Revenue |
| TAN | Tax Anticipation Notes | TAW | Tax Anticipation Warrants |
| TRAN | Tax and Revenue Anticipation Notes | XLCA | XL Capital Assurance |
20
$$/page=
| Summary of Combined Ratings (Unaudited) — Fitch | Moodys | Standard & Poors | Value (%) |
|---|---|---|---|
| AAA | Aaa | AAA | 26.8 |
| AA | Aa | AA | 19.7 |
| A | A | A | 23.5 |
| BBB | Baa | BBB | 17.9 |
| BB | Ba | BB | 4.4 |
| B | B | B | 2.3 |
| F1 | MIG1/P1 | SP1/A1 | .9 |
| Not Rated i | Not Rated i | Not Rated i | 4.5 |
| 100.0 |
| | Based on total investments. |
|---|---|
| i | Securities which, while not rated by Fitch, Moodys and Standard & Poors, have been determined by the Manager to |
| be of comparable quality to those rated securities in which the fund may invest. | |
| See notes to financial statements. |
The Fund 21
$$/page=
| STATEMENT OF ASSETS AND LIABILITIES |
|---|
| May 31, 2010 (Unaudited) |
| Cost | Value | |
|---|---|---|
| Assets ($): | ||
| Investments in securitiesSee Statement of Investments | 584,197,532 | 590,947,990 |
| Cash | 15,946,496 | |
| Interest receivable | 9,270,535 | |
| Prepaid expenses | 3,444 | |
| 616,168,465 | ||
| Liabilities ($): | ||
| Due to The Dreyfus Corporation and affiliatesNote 2(a) | 317,491 | |
| Payable for floating rate notes issuedNote 3 | 35,815,000 | |
| Payable for investment securities purchased | 12,290,377 | |
| Interest and expense payable related to | ||
| floating rate notes issuedNote 3 | 121,388 | |
| Commissions payable | 24,130 | |
| Dividends payable to Preferred Shareholders | 13,933 | |
| Accrued expenses | 198,418 | |
| 48,780,737 | ||
| Auction Preferred Stock, Series A, B and C, par value | ||
| $.001 per share (6,792 shares issued and outstanding | ||
| at $25,000 per share liquidation value)Note 1 | 169,800,000 | |
| Net Assets applicable to Common Shareholders ($) | 397,587,728 | |
| Composition of Net Assets ($): | ||
| Common Stock, par value, $.001 per share | ||
| (48,495,729 shares issued and outstanding) | 48,496 | |
| Paid-in capital | 435,916,679 | |
| Accumulated undistributed investment incomenet | 8,751,714 | |
| Accumulated net realized gain (loss) on investments | (53,879,619) | |
| Accumulated net unrealized appreciation | ||
| (depreciation) on investments | 6,750,458 | |
| Net Assets applicable to Common Shareholders ($) | 397,587,728 | |
| Shares Outstanding | ||
| (110 million shares of $.001 par value Common Stock authorized) | 48,495,729 | |
| Net Asset Value, per share of Common Stock ($) | 8.20 | |
| See notes to financial statements. |
22
$$/page=
| STATEMENT OF OPERATIONS |
|---|
| Six Months Ended May 31, 2010 (Unaudited) |
| Investment Income ($): | |
|---|---|
| Interest Income | 16,671,888 |
| Expenses: | |
| Investment advisory feeNote 2(a) | 1,424,018 |
| Administration feeNote 2(a) | 712,009 |
| Commission feesNote 1 | 154,416 |
| Interest and expense related to | |
| floating rate notes issuedNote 3 | 132,869 |
| Professional fees | 52,508 |
| Shareholders reports | 31,800 |
| Directors fees and expensesNote 2(b) | 26,586 |
| Shareholder servicing costs | 10,809 |
| Registration fees | 6,816 |
| Custodian feesNote 2(a) | 3,355 |
| Miscellaneous | 30,624 |
| Total Expenses | 2,585,810 |
| Lessreduction in investment advisory fee | |
| due to undertakingNote 2(a) | (284,804) |
| Net Expenses | 2,301,006 |
| Investment IncomeNet | 14,370,882 |
| Realized and Unrealized Gain (Loss) on InvestmentsNote 3 ($): | |
| Net realized gain (loss) on investments | (1,175,187) |
| Net unrealized appreciation (depreciation) on investments | 13,376,674 |
| Net Realized and Unrealized Gain (Loss) on Investments | 12,201,487 |
| Dividends to Preferred Shareholders | (347,532) |
| Net Increase in Net Assets Resulting from Operations | 26,224,837 |
| See notes to financial statements. |
The Fund 23
$$/page=
STATEMENT OF CHANGES IN NET ASSETS
| Six Months Ended — May 31, 2010 | Year Ended | |
|---|---|---|
| (Unaudited) | November 30, 2009 | |
| Operations ($): | ||
| Investment incomenet | 14,370,882 | 30,805,161 |
| Net realized gain (loss) on investments | (1,175,187) | (18,127,310) |
| Net unrealized appreciation | ||
| (depreciation) on investments | 13,376,674 | 67,544,835 |
| Dividends to Preferred Shareholders | (347,532) | (1,239,771) |
| Net Increase (Decrease) in Net Assets | ||
| Resulting from Operations | 26,224,837 | 78,982,915 |
| Dividends to Common Shareholders from ($): | ||
| Investment incomenet | (13,093,851) | (22,405,028) |
| Total Increase (Decrease) in Net Assets | 13,130,986 | 56,577,887 |
| Net Assets ($): | ||
| Beginning of Period | 384,456,742 | 327,878,855 |
| End of Period | 397,587,728 | 384,456,742 |
| Undistributed investment incomenet | 8,751,714 | 7,822,215 |
| See notes to financial statements. |
24
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FINANCIAL HIGHLIGHTS
The following table describes the performance for the fiscal periods indicated.Total return shows how much your investment in the fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and dis-tributions.These figures have been derived from the funds financial statements, with respect to common stock and market price data for the funds common shares.
| Six Months Ended | ||||||
|---|---|---|---|---|---|---|
| May 31, 2010 | Year Ended November 30, | |||||
| (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | |
| Per Share Data ($): | ||||||
| Net asset value, | ||||||
| beginning of period | 7.93 | 6.76 | 8.60 | 9.21 | 8.88 | 8.79 |
| Investment Operations: | ||||||
| Investment incomenet a | .30 | .64 | .63 | .62 | .64 | .63 |
| Net realized and unrealized | ||||||
| gain (loss) on investments | .25 | 1.02 | (1.86) | (.59) | .34 | .13 |
| Dividends on Preferred Stock | ||||||
| from investment incomenet | (.01) | (.03) | (.14) | (.14) | (.13) | (.08) |
| Total from | ||||||
| Investment Operations | .54 | 1.63 | (1.37) | (.11) | .85 | .68 |
| Distributions to | ||||||
| Common Shareholders: | ||||||
| Dividends from | ||||||
| investment incomenet | (.27) | (.46) | (.47) | (.50) | (.52) | (.59) |
| Net asset value, end of period | 8.20 | 7.93 | 6.76 | 8.60 | 9.21 | 8.88 |
| Market value, end of period | 8.05 | 7.58 | 5.53 | 7.77 | 9.29 | 8.16 |
| Total Return (%) b | 9.84 c | 46.74 | (24.12) | (1.17) | 9.94 | 3.78 |
The Fund 25
$$/page=
FINANCIAL HIGHLIGHTS (continued)
| Six Months Ended | ||||||
|---|---|---|---|---|---|---|
| May 31, 2010 | Year Ended November 30, | |||||
| (Unaudited) | 2009 | 2008 | 2007 | 2006 | 2005 | |
| Ratios/Supplemental Data (%): | ||||||
| Ratio of total expenses | ||||||
| to average net assets | ||||||
| applicable to Common Stock d | 1.33 e | 1.37 | 1.44 | 1.43 | 1.38 | 1.26 |
| Ratio of net expenses | ||||||
| to average net assets | ||||||
| applicable to Common Stock d | 1.18 e | 1.21 | 1.30 | 1.28 | 1.24 | 1.12 |
| Ratio of interest and expense | ||||||
| related to floating rate notes | ||||||
| issued to average net assets | ||||||
| applicable to Common Stock d | .07 e | .01 | .12 | .17 | .12 | .05 |
| Ratio of net investment income | ||||||
| to average net assets | ||||||
| applicable to Common Stock d | 7.38 e | 8.65 | 7.89 | 7.01 | 7.16 | 6.98 |
| Ratio of total expenses | ||||||
| to total average net assets | .91 e | .90 | .98 | 1.00 | .97 | .88 |
| Ratio of net expenses | ||||||
| to total average net assets | .81 e | .80 | .88 | .90 | .87 | .78 |
| Ratio of interest and expense | ||||||
| related to floating rate notes | ||||||
| issued to total average net assets | .05 e | .01 | .08 | .12 | .09 | .04 |
| Ratio of net investment income | ||||||
| to total average net assets | 5.05 e | 5.68 | 5.34 | 4.90 | 5.01 | 4.88 |
| Portfolio Turnover Rate | 9.96 c | 31.59 | 53.01 | 55.89 | 57.12 | 44.20 |
| Asset coverage of Preferred Stock, | ||||||
| end of period | 334 | 307 | 276 | 324 | 339 | 330 |
| Net Assets, net of Preferred Stock, | ||||||
| end of period ($ x 1,000) | 397,588 | 384,457 | 327,879 | 417,177 | 444,599 | 428,466 |
| Preferred Stock outstanding, | ||||||
| end of period ($ x 1,000) | 169,800 | 186,000 | 186,000 | 186,000 | 186,000 | 186,000 |
| a | Based on average common shares outstanding at each month end. |
|---|---|
| b | Calculated based on market value. |
| c | Not annulized. |
| d | Does not reflect the effect of dividends to Preferred Shareholders. |
| e | Annualized. |
| See notes to financial statements. |
26
$$/page=
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1Significant Accounting Policies:
Dreyfus Strategic Municipal Bond Fund, Inc. (the fund) is registered under the Investment Company Act of 1940, as amended (the Act), as a diversified closed-end management investment company.The funds investment objective is to maximize current income exempt from federal income tax to the extent consistent with the preservation of capital. The Dreyfus Corporation (the Manager or Dreyfus), a wholly-owned subsidiary ofThe Bank of NewYork Mellon Corporation (BNY Mellon), serves as the funds investment adviser. BNY Mellon Investment Servicing (US) Inc., a subsidiary of BNY Mellon and an affiliate of Dreyfus, serves as the funds transfer agent, dividend-paying agent, registrar and plan agent.The funds Common Stock trades on the NewYork Stock Exchange (theNYSE) under the ticker symbol DSM.
The fund has outstanding 2,264 shares of Series A, Series B and Series C for a total of 6,792 shares of Auction Preferred Stock (APS), with a liquidation preference of $25,000 per share (plus an amount equal to accumulated but unpaid dividends upon liquidation). APS dividend rates are determined pursuant to periodic auctions or by reference to a market rate. Deutsche Bank Trust Company America, as Auction Agent, receives a fee from the fund for its services in connection with such auctions. The fund also compensates broker-dealers generally at an annual rate of .15%-.25% of the purchase price of the shares of APS.
The fund is subject to certain restrictions relating to the APS. Failure to comply with these restrictions could preclude the fund from declaring any distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of APS at liquidation value.Thus, redemptions of APS may be deemed to be outside of the control of the fund.
The holders of the APS, voting as a separate class, have the right to elect at least two directors.The holders of the APS will vote as a separate class on certain other matters, as required by law. The fund has designated Robin A. Melvin and John E. Zuccotti as directors to be elected by the holders of APS.
The Fund 27
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
On November 9, 2009, the Board of Directors authorized the fund to redeem up to 25% of the funds APS, subject to market, regulatory and other conditions and factors, over a period of up to approximately twelve months.
During the period ended May 31, 2010, the fund announced the following redemptions of APS at a price of $25,000 per share plus any accrued and unpaid dividends through the redemption date.
| Shares | Amount | Redemption | |
|---|---|---|---|
| Series | Redeemed | Redeemed ($) | Date |
| A | 68 | 1,700,000 | March 9, 2010 |
| B | 68 | 1,700,000 | March 11, 2010 |
| C | 68 | 1,700,000 | March 8, 2010 |
| A | 88 | 2,200,000 | March 30, 2010 |
| B | 88 | 2,200,000 | April 1, 2010 |
| C | 88 | 2,200,000 | March 29, 2010 |
| A | 60 | 1,500,000 | April 27, 2010 |
| B | 60 | 1,500,000 | April 29, 2010 |
| C | 60 | 1,500,000 | April 26, 2010 |
| Total | 648 | 16,200,000 |
On May 18, 2010, the fund announced the following additional redemptions of APS at a price of $25,000 per share plus any accrued and unpaid dividends through the redemption date.
| Shares | Amount | Redemption | |
|---|---|---|---|
| Series | Redeemed | Redeemed ($) | Date |
| A | 160 | 4,000,000 | June 8, 2010 |
| B | 160 | 4,000,000 | June 10, 2010 |
| C | 160 | 4,000,000 | June 7, 2010 |
| Total | 480 | 12,000,000 |
The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) is the exclusive reference of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities.Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal laws are also sources of authoritative GAAP for SEC registrants. The funds financial statements are prepared in accor-
28
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dance with GAAP, which may require the use of management estimates and assumptions.Actual results could differ from those estimates.
The fund enters into contracts that contain a variety of indemnifications. The funds maximum exposure under these arrangements is unknown.The fund does not anticipate recognizing any loss related to these arrangements.
(a) Portfolio valuation: Investments in municipal debt securities are valued on the last business day of each week and month by an independent pricing service (the Service) approved by the Board of Directors. Investments for which quoted bid prices are readily available and are representative of the bid side of the market in the judgment of the Service are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other investments (which constitute a majority of the portfolio securities) are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of municipal securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Options and financial futures on municipal securities and U.S.Treasury securities are valued at the last sales price on the securities exchange on which such securities are primarily traded or at the last sales price on the national securities market on the last business day of each week and month.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value.This hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The Fund 29
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
Additionally, GAAP provides guidance on determining whether the volume and activity in a market has decreased significantly and whether such a decrease in activity results in transactions that are not orderly. GAAP requires enhanced disclosures around valuation inputs and techniques used during annual and interim periods.
Various inputs are used in determining the value of the funds investments relating to fair value measurements.These inputs are summarized in the three broad levels listed below:
Level 1 unadjusted quoted prices in active markets for identical investments.
Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3 significant unobservable inputs (including the funds own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of May 31, 2010 in valuing the funds investments:
| Level 1 | Level 2Other — Significant | Level 3 — Significant | ||
|---|---|---|---|---|
| Unadjusted | Observable | Unobservable | ||
| Quoted Prices | Inputs | Inputs | Total | |
| Assets ($) | ||||
| Investments in Securities: | ||||
| Municipal Bonds | | 590,947,990 | | 590,947,990 |
In January 2010, FASB issued Accounting Standards Update (ASU) No. 2010-06 Improving Disclosures about Fair Value Measurements. ASU 2010-06 will require reporting entities to make new disclosures about amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring
30
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fair value measurements that fall in either Level 2 or Level 3, and information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. The new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2009 except for the disclosures surrounding purchases,sales,issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact the adoption of ASU No. 2010-06 may have on the funds financial statement disclosures.
(b) Securities transactions and investment income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Interest income, adjusted for accretion of discount and amortization of premium on investments, is earned from settlement date and recognized on the accrual basis. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date.
The fund has an arrangement with the custodian bank whereby the fund receives earnings credits from the custodian when positive cash balances are maintained, which are used to offset custody fees. For financial reporting purposes, the fund includes net earnings credits, as an expense offset in the Statement of Operations.
(c) Dividends to shareholders of Common Stock (Common Shareholder(s)): Dividends are recorded on the ex-dividend date. Dividends from investment income-net are declared and paid monthly. Dividends from net realized capital gains, if any, are normally declared and paid annually, but the fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended (the Code).To the extent that net realized capital gains can be offset by capital loss carry-
The Fund 31
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
overs, it is the policy of the fund not to distribute such gains. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP.
For Common Shareholders who elect to receive their distributions in additional shares of the fund, in lieu of cash, such distributions will be reinvested at the lower of the market price or net asset value per share (but not less than 95% of the market price) based on the record dates respective prices. If the net asset value per share on the record date is lower than the market price per share, shares will be issued by the fund at the record dates net asset value on the payable date of the distribution. If net asset value per share is less than 95% of the market value, shares will be issued by the fund at 95% of the market value. If the market price is lower than the net asset value per share on the record date, BNY Mellon Investment Servicing (US) Inc. will purchase fund shares in the open market commencing on the payable date and reinvest those shares accordingly. As a result of purchasing fund shares in the open market, fund shares outstanding will not be affected by this form of reinvestment.
On May 27, 2010, the Board of Directors declared a cash dividend of $.045 per share from investment income-net, payable on June 30, 2010 to Common Shareholders of record as of the close of business on June 11, 2010.
(d) Dividends to Shareholders of APS: Dividends, which are cumulative, are generally reset every 7 days for each Series of APS pursuant to a process specified in related fund charter documents. Dividend rates as of May 31, 2010, for each Series of APS were as follows: Series A -0.457%, Series B-0.427% and Series C-0.457%.These rates reflect the maximum rates under the governing instruments as a result of failed auctions in which sufficient clearing bids are not received.The average dividend rates for the period ended May 31, 2010 for each Series of APS were as follows: Series A-0.387%, Series B-0.382% and Series C-0.390%.
32
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(e) Federal income taxes: It is the policy of the fund to continue to qualify as a regulated investment company, which can distribute tax exempt dividends, by complying with the applicable provisions of the Code and to make distributions of income and net realized capital gain sufficient to relieve it from substantially all federal income and excise taxes.
As of and during the period ended May 31, 2010, the fund did not have any liabilities for any uncertain tax positions.The fund recognizes interest and penalties, if any, related to uncertain tax positions as income tax expense in the Statement of Operations. During the period, the fund did not incur any interest or penalties.
Each of the tax years in the three-year period ended November 30, 2009 remains subject to examination by the Internal Revenue Service and state taxing authorities.
The fund has an unused capital loss carryover of $52,897,603 available for federal income tax purposes to be applied against future net securities profits, if any, realized subsequent to November 30, 2009. If not applied, $9,253,314 of the carryover expires in fiscal 2010, $5,474,907 expires in fiscal 2011, $10,957,023 expires in fiscal 2012, $1,427,978 expires in fiscal 2015, $5,522,686 expires in fiscal 2016 and $20,261,695 expires in fiscal 2017.
The tax character of distributions paid to shareholders during the fiscal year ended November 30, 2009 was as follows: tax exempt income $23,539,431 and ordinary income $105,368.The tax character of current year distributions will be determined at the end of the current fiscal year.
NOTE 2Investment Advisory Fee, Administration Fee and Other Transactions With Affiliates:
(a) The fee payable by the fund, pursuant to the provisions of an Investment Advisory Agreement with Dreyfus, is payable monthly based on an annual rate of .50% of the value of the funds average
The Fund 33
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
weekly net assets (including net assets representing auction preferred stock outstanding). The fund also has an Administration Agreement with Dreyfus, a Custody Agreement with the Custodian and a Transfer Agency and Registrar Agreement with BNY Mellon Investment Servicing (US) Inc.The fund pays in the aggregate for administration, custody and transfer agency services a monthly fee based on an annual rate of .25% of the value of the funds average weekly net assets (including net assets representing auction preferred stock outstanding). Out-of pocket transfer agency and custody expenses, including custody transaction expenses, are paid separately by the fund.
Dreyfus has agreed from December 1, 2009 through November 30, 2010, to waive receipt of a portion of the funds investment advisory fee, in the amount of .10% of the value of the funds average weekly net assets (including net assets representing auction preferred stock outstanding). The reduction in investment advisory fee, pursuant to the undertaking, amounted to $284,804 during the period ended May 31, 2010.
The fund compensates The Bank of NewYork Mellon, a subsidiary of BNY Mellon and an affiliate of Dreyfus, under a custody agreement for providing custodial services for the fund. During the period ended May 31, 2010, the fund was charged $3,355 for out-of-pocket and custody transaction expenses, pursuant to the custody agreement.
During the period ended May 31, 2010, the fund was charged $2,742 for services performed by the Chief Compliance Officer.
The components of Due to The Dreyfus Corporation and affiliates in the Statement of Assets and Liabilities consist of: investment advisory fees $361,015, custodian fees $955 and chief compliance officer fees $3,656, which are offset against an expense reimbursement currently in effect in the amount of $48,135.
(b) Each Board member also serves as a Board member of other funds within the Dreyfus complex. Annual retainer fees and attendance fees are allocated to each fund based on net assets.
34
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NOTE 3Securities Transactions:
The aggregate amount of purchases and sales of investment securities, excluding short-term securities, during the period ended May 31, 2010, amounted to $56,097,465 and $96,637,214, respectively.
The fund adopted the provisions of ASC Topic 815 Derivatives and Hedging which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The fund held no derivatives during the period ended May 31, 2010. These disclosures did not impact the notes to the financial statements.
Inverse Floater Securities: The fund may participate in secondary inverse floater structures in which fixed-rate, tax-exempt municipal bonds purchased by the fund are transferred to a trust.The trust subsequently issues two or more variable rate securities that are collateralized by the cash flows of the fixed-rate, tax-exempt municipal bonds. One or more of these variable rate securities pays interest based on a short-term floating rate set by a remarketing agent at predetermined intervals. A residual interest tax-exempt security is also created by the trust, which is transferred to the fund, and is paid interest based on the remaining cash flow of the trust, after payment of interest on the other securities and various expenses of the trust.
The fund accounts for the transfer of bonds to the trust as secured borrowings, with the securities transferred remaining in the funds investments, and the related floating rate certificate securities reflected as fund liabilities under the caption, Payable for floating rate notes issued in the Statement of Assets and Liabilities.
The average amount of borrowings outstanding under the inverse floater structure during the period ended May 31, 2010, was approximately $18,502,500, with a related weighted average annualized interest rate of 1.44%.
The Fund 35
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
At May 31, 2010, accumulated net unrealized appreciation on investments was $6,750,458, consisting of $33,808,830 gross unrealized appreciation and $27,058,372 gross unrealized depreciation.
At May 31, 2010, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes (see the Statement of Investments).
NOTE 4Subsequent Events Evaluation:
On July 9, 2010, the fund announced the following redemptions of APS at a price of $25,000 per share plus any accrued and unpaid dividends through the redemption date.
| Shares | Amount | Redemption | |
|---|---|---|---|
| Series | Redeemed | Redeemed ($) | Date |
| A | 33 | 825,000 | July 27, 2010 |
| B | 33 | 825,000 | July 29, 2010 |
| C | 33 | 825,000 | July 26, 2010 |
| Total | 99 | 2,475,000 |
36
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| INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE |
|---|
| FUNDS INVESTMENT ADVISORY AGREEMENT (Unaudited) |
At a Meeting of the funds Board of Directors held on April 26, 2010, the Board considered the re-approval of the funds Investment Advisory Agreement through November 30, 2010, pursuant to which the Manager provides the fund with investment advisory services, and the funds separate Administration Agreement, pursuant to which the Manager provides the fund with administrative services. The Board members, none of whom are interested persons (as defined in the Investment Company Act of 1940, as amended) of the fund, were assisted in their review by independent legal counsel and met with counsel in executive session separate from representatives of the Manager.
Analysis of Nature, Extent, and Quality of Services Provided to the Fund. The Board members considered information previously provided to them in a presentation from representatives of the Manager regarding services provided to the fund and other funds in the Dreyfus complex, and representatives of the Manager confirmed that there had been no material changes in the information. The Board also discussed the nature, extent, and quality of the services provided to the fund pursuant to the funds Management Agreement. The Managers representatives noted the funds closed-end structure, the relationships the Manager has with various intermediaries, the different needs of each intermediary, and the Managers corresponding need for broad, deep, and diverse resources to be able to provide ongoing shareholder services to fund shareholders.The Board noted the funds asset size and considered that a closed-end fund is not subject to the inflows and outflows of assets as an open-end fund would be that would increase or decrease its asset size.
The Board members also considered the Managers research and portfolio management capabilities and that the Manager also provides oversight of day-to-day fund operations, including fund accounting and administration and assistance in meeting legal and regulatory requirements. The Board members also considered the Managers extensive administrative, accounting, and compliance infrastructure.
The Fund 37
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| INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUNDS |
|---|
| INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
Comparative Analysis of the Funds Management Fee and Expense Ratio and Performance. The Board members reviewed reports prepared by Lipper, Inc., an independent provider of investment company data, which included information comparing the funds management fee and expense ratio with a group of comparable leveraged funds (the Expense Group) and with a broader group of funds (the Expense Universe) that were selected by Lipper. Included in the funds reports were comparisons of contractual and actual management fee rates and total operating expenses.
The Board members also reviewed the reports prepared by Lipper that presented the funds performance on an net asset value and market price basis and comparisons of total return performance, all for various periods ended March 31, 2010, and yield performance for one-year periods ended March 31, 2010, for the fund to the same group of funds as the Expense Group (the Performance Group) and to a group of funds that was broader than the Expense Universe (the Performance Universe) that also were selected by Lipper.The Manager previously had furnished the Board with a description of the methodology Lipper used to select the funds Expense Group and Expense Universe, and Performance Group and Performance Universe.The Manager also provided a comparison of the funds total return on a net asset value basis to the funds Lipper category average return.
The Board reviewed the results of the Expense Group and Expense Universe comparisons that were prepared based on financial statements currently available to Lipper as of March 31, 2010.The Board reviewed the range of management fees and expense ratios of the funds in the Expense Group and Expense Universe, and noted that the funds contractual management fee (based on net assets attributable to common stock only) was higher than the Expense Group median and that the funds actual management fee (based on net assets attributable to common and leveraged shares and to common shares only) was higher than the respective Expense Group and Expense Universe medians.The Board also noted that the funds total expense
38
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ratio (also based on net assets attributable to common and leveraged shares and to common shares only) was lower than the Expense Group and Expense Universe medians.The Board noted the undertaking in effect by the Manager over the past year to waive receipt of 0.10% of the funds management fee and the Managers commitment to continue such waiver through November 30, 2010.
With respect to the funds performance on a net asset value basis, the Board noted that the funds total return performance was variously at, higher, and lower than the Performance Group and Performance Universe medians for each reported time period up to 10 years. On a yield performance basis, the Board noted that the funds 1-year yields for the past 10 annual periods were higher than the Performance Group median for 8 of the 10 annual periods, and higher than the Performance Universe median for 9 of the 10 annual periods.
With respect to the funds performance on a market price basis, the Board noted that the fund also achieved total return results variously at, higher and lower than the Performance Group and Performance Universe medians for each reported time period up to 10 years. On a yield performance basis, the Board noted that the funds 1-year yields for the past 10 annual periods were at or higher than the Performance Group and Performance Universe medians for 9 of the 10 reported annual periods.
The Board received a presentation from the funds portfolio manager on the funds investment decision-making process and strategy over the past year, and the material factors that affected the funds relative total return performance on a net asset value basis over the past year. The Board noted the portfolio managers long-term track record in managing municipal bond funds generally, including closed-end funds, the funds generally strong yield performance results, and the funds median or above-median market-price total return results in the Performance Group for 4 of the 6 reported time periods.
The Fund 39
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| INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUNDS |
|---|
| INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
Representatives of the Manager reviewed with the Board members the fees paid to the Manager or its affiliates by investment companies managed by the Manager or its affiliates that were reported in the same Lipper category as the fund (the Similar Funds). It was noted that each Similar Fund also was a closed-end fund, for which similar services to be provided by the Manager are required.The Board members analyzed differences in fees paid to the Manager and discussed the relationship of the management fees in light of the services provided.The Board members considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the funds management fee.The Managers representatives noted that there were no similarly managed institutional separate accounts or wrap fee accounts managed by the Manager or its affiliates with similar investment objectives, policies, and strategies as the fund.
Analysis of Profitability and Economies of Scale. The Managers representatives reviewed the dollar amount of expenses allocated and profit received by the Manager for the fund and the method used to determine such expenses and profit.The Board considered information, previously provided and discussed, prepared by an independent consulting firm regarding the Managers approach to allocating costs to, and determining the profitability of, individual funds and the entire Dreyfus mutual fund complex. The Board also had been informed that the methodology had also been reviewed by an independent registered public accounting firm which, like the consultant, found the methodology to be reasonable. The consulting firm also analyzed where any economies of scale might emerge in connection with the management of a fund. The Board members evaluated the profitability analysis in light of the relevant circumstances for the fund, including the extent to which economies of scale would be realized if the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders. The Board also considered the Managers brokerage policies and practices and
40
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the standards applied in seeking best execution.The Board members also considered potential benefits to the Manager from acting as investment adviser to the fund and noted that there were no soft dollar arrangements in effect with respect to trading the funds portfolio.
It was noted that the Board members should consider the Managers profitability with respect to the fund as part of their evaluation of whether the fees under the Management Agreement bear a reasonable relationship to the mix of services provided by the Manager, including the nature, extent, and quality of such services and that a discussion of economies of scale is predicated on increasing assets and that, if a funds assets had been decreasing, the possibility that the Manager may have realized any economies of scale would be less. It was noted that the profitability percentage for managing the fund was within the range determined by appropriate court cases to be reasonable given the services rendered and that the profitability percentage for managing the fund was reasonable given the generally superior service levels provided. The Board also noted the Managers waiver of receipt of a portion of the management fee over the past year and its effect on profitability.
At the conclusion of these discussions, the Board agreed that it had been furnished with sufficient information to make an informed business decision with respect to continuation of the funds Management Agreement. Based on the discussions and considerations as described above, the Board reached the following conclusions and determinations.
The Fund 41
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| INFORMATION ABOUT THE REVIEW AND APPROVAL OF THE FUNDS |
|---|
| INVESTMENT ADVISORY AGREEMENT (Unaudited) (continued) |
The Board members considered these conclusions and determinations, along with the information received on a routine and regular basis throughout the year, and, without any one factor being dispositive, the Board determined that re-approval of the funds Management Agreement through November 30, 2010 was in the best interests of the fund and its shareholders.
42
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The Fund 43
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NOTES
44
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| Item 2. | Code of Ethics. |
|---|---|
| Not applicable. | |
| Item 3. | Audit Committee Financial Expert. |
| Not applicable. | |
| Item 4. | Principal Accountant Fees and Services. |
| Not applicable. | |
| Item 5. | Audit Committee of Listed Registrants. |
| Not applicable. | |
| Item 6. | Investments. |
| (a) | Not applicable. |
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management |
| Investment Companies. | |
| Not applicable. | |
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
| Not applicable. | |
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Companies and |
| Affiliated Purchasers. | |
| Not applicable. [CLOSED END FUNDS ONLY] | |
| Item 10. | Submission of Matters to a Vote of Security Holders. |
| There have been no material changes to the procedures applicable to Item 10. |
ITEM 11. Controls and Procedures.
(a) The Registrant's principal executive and principal financial officers have concluded, based on their evaluation of the Registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
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(b) There were no changes to the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
ITEM 12. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(a)(3) Not applicable.
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dreyfus Strategic Municipal Bond Fund, Inc.
| By: | /s/ Bradley J. Skapyak |
|---|---|
| Bradley J. Skapyak, | |
| President | |
| Date: | July 23, 2010 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By: | /s/ Bradley J. Skapyak |
|---|---|
| Bradley J. Skapyak, | |
| President | |
| Date: | July 23, 2010 |
| By: | /s/ James Windels |
| James Windels, | |
| Treasurer | |
| Date: | July 23, 2010 |
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| EXHIBIT INDEX |
|---|
| (a)(2) Certifications of principal executive and principal financial officers as required by Rule 30a- |
| 2(a) under the Investment Company Act of 1940. (EX-99.CERT) |
(b) Certification of principal executive and principal financial officers as required by Rule 30a-2(b) under the Investment Company Act of 1940. (EX-99.906CERT)
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